In 2017, American consultants produced around $63.2 Billion in revenue (Statista, 2018). This is not surprising considering the continued growth of the consulting field and the robust salaries consultants earn. Being a consultant basically means getting paid to share your knowledge and expertise with corporations. That’s a pretty good gig if you can get it!
For every industry in the United States, there is a consultant available to offer guidance and support to a business operating within that industry. The most popular areas of consulting are within Management, Marketing, Research, Information Technology (IT), and Human Resources. Some consultants work alone as self-employed professionals and other consultants work for large national consulting firms.
Most consultants like yourself buy liability insurance because they know it’s the best way to ensure survival of your business in case of a lawsuit. A liability claim against your consulting business could cost a tremendous amount in both money and time. The surest way to offset the financial strain this situation could place on your company is by securing liability insurance.
Professional Liability (E&O) Insurance for Consultants Defined
Professional liability insurance is also known as Errors & Omissions (E&O) Insurance. E&O insurance is there to provide protection for services, advice, or paperwork errors. A professional liability policy covers you and all employees of your consulting firm.
Professional liability (E&O) insurance is different than general liability because it’s meant to protect your business from unintentionally misleading a client. Lawsuits can arise if a customer believes your business misrepresented its services, failed to provide important information, or simply performed poorly.
Professional liability coverage premiums, and even the policy terms, may be slightly different for your consulting firm than for a CPA, insurance agent, or plumber. This is because your risk is most likely different than those other professions. However, the coverage is administered in the same manner and serves the same purpose for all professions.
Liability Insurance for Consultants May Help Secure Clients
Liability insurance is not legally required for consultants the same as auto insurance is for transportation companies. However, you may find that many of your clients will expect you to have liability insurance in order to earn their business.
For example, if you are an IT consultant, you may find that your customer requires you to have professional liability (E&O) insurance in an amount equal to their own policy. If your customer has a $2,000,000 liability limit, then you will be expected to have an E&O that at least matches that $2,000,000 in coverage. If you do not have liability insurance that corresponds to your client’s requirements, then you simply won’t get the work.
It’s best to proactively purchase liability insurance rather than waiting for a client to ask for proof of coverage. If you don’t have a liability policy in place then your potential client will probably move on to the next consulting candidate that does.
Finally, imagine if you did unintentionally make a professional mistake during a project and did not have the proper liability insurance to cover the loss. How will you be able to make things right for your client? How would your business cover the costs?
You can see how not having liability insurance can be extremely damaging to your consulting business. You can learn more about consultant liability insurance here.
Important Details about Liability Insurance
What Are Liability Limits?
All insurance coverage has set limits of liability which is basically the maximum amount of money the insurance carrier will pay for your claim. There are two different liability limits included in each policy: per occurrence and aggregate.
Per Occurrence Liability Limits: Each time you file a claim against your liability insurance this limit is the maximum amount the insurance company will pay for that particular claim. Any costs that exceed the liability limit will be your responsibility.
Aggregate Liability Limits: The total cost of all claims filed under your liability insurance is the aggregate. The aggregate liability limit for your policy is the maximum amount of money the insurance company will pay for all claims. You will be responsible for any costs that surpass the liability limit.
Claims-Made vs. Occurrence Policies
Before accepting your new liability insurance plan, be sure you understand whether your policy is written as an Occurrence or a Claims-Made policy.
A Claims-Made policy covers you only for claims filed while the liability coverage remains in force. Any liability lawsuits filed outside of the policy term will not be covered.
You are able to file a claim even if the policy is no longer active under occurrence policies. As long as the liability coverage was in good standing during the time of the alleged wrongdoing, the liability insurance company will handle your claim as if the policy was still active today.
What Are Deductibles?
Professional (E&O) Liability Insurance usually has a $1,000 deductible. The deductible on your professional liability insurance is the same as your health or auto insurance. If you have a claim that is going to be paid out, you will need to first meet your designated deductible amount.
If your liability policy is a per occurrence deductible then only one deductible will be collected.
If you have a per claim deductible then a separate deductible will be collected for each claim. This is important to know in case you have one event that results in multiple lawsuits or multiple plaintiffs. In a situation such as this, you would pay one deductible per plaintiff.
You will want to clarify all the details of your policy.
How Much Does Liability Insurance Cost?
All insurance premiums are unique to the insured. Liability insurance is no exception. Insurance costs will vary depending on the size of the company (number of employees and payroll), the industry, the geographic location, and risks associated with the type of consulting performed. Keep in mind, part-time employees and contract employees do factor into the total premium costs.
Based on our above estimate, you may pay between $2.73 and $8.21 per day for insurance that can extend you $1,000,000 in protection. If you were reviewing these numbers with a client, what would your professional advice be? If you would encourage a valued client to buy liability insurance, as a smart business investment, then it makes sense for you to do the same.
Get an idea of how much you’ll pay for consultant liability insurance.
In order to maintain your position in such an exciting industry, you will want to protect your consulting business with liability insurance.
Professional (E&O) Liability will provide a financial resource should you be named in a lawsuit by a dissatisfied client. Having a liability policy in place may also help you in landing future customers. Being able to show proof of liability coverage will certainly bring peace of mind to your new business partners.
A few dollars a day is the least you can pay to continue your much-deserved success.
Statista (2018), [Online] Available from: https://www.statista.com/statistics/793147/consulting-market-size-united-states/
U.S. Bureau of Labor Statistics (April 13, 2018), [Online] Available from: https://www.bls.gov/ooh/business-and-financial/management-analysts.htm